U.S. Supreme Court Rejects BP’s Attempts to Back Out of Its Own Settlement

In What's New in Class Action Law?, What's New in the BP Oil Spill Litigation, What's New in the Courts by gravierhouseLeave a Comment

On December 8, 2014, the U.S. Supreme Court denied BP’s petition for certiorari, leaving undisturbed the U.S. Fifth Circuit’s approval of the class action settlement which BP originally agreed to and proposed.

By way of background:  “BP supported the Settlement Agreement during the proceedings leading up to and including the district court’s order of December 21, 2012. BP now argues that two Policy Announcements issued by the Claims Administrator regarding the interpretation and appli-cation of the Settlement Agreement—both of which were adopted in orders by the district court—have subsequently brought the Settlement Agreement into violation of Rule 23, the Rules Enabling Act, and Article III of the U.S. Constitution.  Whereas the Settlement Agreement’s Exhibit 4C established a formula for the measurement of economic loss, Exhibit 4B set forth criteria for prospective claimants to demonstrate to the Claims Administrator that their losses were caused by the Deepwater Horizon oil spill. In the Policy An-nouncement, the Claims Administrator explained: ‘The Settlement Agreement does not contemplate that the Claims Administrator will undertake addi-tional analysis of causation issues beyond those criteria that are specifically set out in the Settlement Agreement. Both Class Counsel and BP have in response to the Claims Administrator’s inquiry confirmed that this is in fact a correct statement of their intent and of the terms of the Settlement Agreement. The Claims Administrator will thus compensate eligible Business Economic Loss and Individual Economic Loss claimants for all losses payable under the terms of the Economic Loss frameworks in the Settlement Agreement, without regard to whether such losses resulted or may have resulted from a cause other than the Deepwater Horizon oil spill provided such claimants have satisfied the specific causation requirements set out in the Settlement Agreement.’  The record reflects that no party ever formally objected to this second Policy Announcement, and the district court adopted this Policy Announcement in an order docketed on April 9, 2013. That order was never independently appealed to this court. BP also has never suggested that the Claims Administrator was incorrect to state that ‘both Class Counsel and BP have … confirmed that [the second Policy Announcement] is in fact a correct statement of their intent and of the terms of the Set-tlement Agreement.’ In fact, the record contains an e-mail message from Judge Barbier to a number of participants in this litigation documenting a ‘discussion’ on December 12, 2012, during which it was confirmed that ‘Counsel for BP and the PSC agree with the Claims Administrator’s objective analysis of causation with respect to his evaluation of economic damage claims,’ as set forth in the second Policy Announcement. It is striking” the court said “that BP makes no attempt to identify a standard that we should apply to deter-mine whether these elements are satisfied in this case. The frequent references in BP’s briefs to the ‘vast numbers of members who suffered no Article III injury’ are disconnected from any discussion of pleading requirements, competent evidence, or the standards of proof by which the parties’ contentions are evaluated during different stages of litigation. In particular, BP’s arguments fail to explain how this court or the district court should identify or even discern the existence of ‘claimants that have suffered no cognizable injury’ for purposes of the standing inquiry during class certification and settlement approval.”

Two ways of examining Article III for Rule 23 purposes: “As stated in a frequently cited decision by the Seventh Circuit, Kohen v. Pacific Investment Management Co. LLC, 571 F.3d 672, 677 (7th Cir. 2009), it is ‘almost inevitable’ that ‘a class will … include persons who have not been injured by the defendant’s conduct … because at the outset of the case many of the members of the class may be unknown, or if they are known still the facts bearing on their claims may be unknown. According to Kohen, however, even this ‘inevitability’ does not preclude Article III standing during the Rule 23 stage. Other circuit decisions have not necessarily ignored absent class members. According to these decisions, courts must ensure that absent class members possess Article III standing by examining the class definition. Importantly, however, this approach does not contemplate scrutinizing or weighing any evidence of absent class members’ standing or lack of standing during the Rule 23 stage. The most frequently cited formulation of this test is found in the Second Circuit’s decision in Denney v. Deutsche Bank AG, 443 F.3d 253 (2d Cir. 2006): ‘We do not require that each member of a class submit evidence of personal standing. At the same time, no class may be certified that contains members lacking Article III standing. The class must therefore be defined in such a way that anyone within it would have standing.'”

The Fifth Circuit finds it unnecessary to choose between the two approaches: “This case is not a vehicle for us to choose whether Kohen or Denney articulated the correct test. Nor does this case require us to decide whether Mims has already adopted the Kohen test as a matter of Fifth Circuit law. For the purposes of the present case, these questions are entirely academic because BP’s standing argument fails under both the Kohen test and the Denney test. As explained in the next section, both the named plaintiffs and the absent class members contemplated by the class definition include only persons and entities who can allege causation and injury in accordance with Article III.”

In concluding the analysis, the court noted “the possibility that the application of a stricter evidentiary standard might reveal persons or entities who have received payments under Exhibits 4B and 4C and yet have suffered no loss resulting from the oil spill. But courts are not authorized to apply such a standard for this purpose at the Rule 23 stage. Under Lujan and Lewis, of course, this is precisely what the district judge must do at summary judgment and what the finder of fact must do at trial. Without ever saying so explicitly, BP implies that we should also resolve Article III questions at the Rule 23 stage by looking to evidence of certain prospective claimants’ standing. BP has cited no authority—and we are aware of none—that would permit an evidentiary inquiry into the Article III standing of absent class members during class certification and settlement approval under Rule 23. It is true that a district court may ‘probe behind the pleadings’ when examining whether a specific case meets the requirements of Rule 23, such as numerosity, commonality, typicality, and adequacy. But the Supreme Court cautioned in Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, 133 S.Ct. 1184 (2013), that ‘Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage. Merits questions may be considered to the extent—but only to the extent—that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.”

Finally, from a policy standpoint: “it would make no practical sense for a court to require evidence of a party’s claims when the parties themselves seek settlement under Rule 23(e). Logically, requiring absent class members to prove their claims prior to settlement under Rule 23(e) would eliminate class settlement because there would be no need to settle a claim that was already proven. Such a rule would thwart the ‘overriding public interest in favor of settlement’ that we have recognized ‘particularly in class action suits.”  The legitimacy of class settlements is reflected not only in Rule 23(e) but also in the special regime that Congress has created to govern class settlements under 28 U.S.C. §§ 1711–15.  Through the procedural mechanism of a class settlement, defendants ‘are entitled to settle claims pending against them on a class-wide basis even if a court believes that those claims may be meritless, provided that the class is properly certified under Rules 23(a) and (b) and the settlement is fair under Rule 23(e).’  By entering into class-wide settlements, defendants ‘obtain releases from all those who might wish to assert claims, meritorious or not’ and protect themselves from even those ‘plaintiffs with non-viable claims [who] do nonetheless commence legal action.'”

In re Deepwater Horizon, 739 F.3d 790 (5th Cir. 2014) (“Deepwater Horizon II”), rehearing en banc denied, 756 F.3d 320 (5th Cir. 2014), cert. denied, 135 S.Ct. 734 (2014).

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